FOCUS ON AG: 2016 CORN ARC-CO PAYMENTS NEARLY FINAL

By Kent Thiesse, Farm Management Analyst and Vice President, MinnStar Bank

Mankato Times

Some farm operators in the Upper Midwest will be receiving a significant ARC-CO payment on their corn base acres during October from the USDA Farm Service Agency (FSA). Farm operators in other counties in the same region will be receiving much smaller payments, and producers in some counties will receive no payment. Most crop producers in Minnesota and surrounding States are enrolled in the county yield-based Ag Risk Coverage (ARC-CO) farm program choice on their corn and soybean base acres. The Price Loss Coverage (PLC) farm program option is a “price-only” based program, which is more popular for small grain crops.

ARC-CO program payments in the current Farm Bill are based on changes in national price levels, and the county-level yields for a given crop, compared to the 5-year benchmark average national prices for a crop and the 5-year county benchmark yields. The county-based yield calculations have resulted in a wide variation in the level of ARC-CO payments from one year to the next, as well as from county-to-county in the same year. The PLC payments are based on the national market year average (MYA) price, compared to pre-set target prices for various crops, and the payment rates are the same in every county throughout the U.S.

All 2016 ARC-CO corn and soybean payments are based on the final national MYA price for the 2016 crop year, which extended from September 1, 2016 to August 31, 2017, with MYA prices being finalized on September 30, 2017. The estimated 2016 MYA prices as of 9-01-17 were $3.35 per bushel for corn and $9.50 per bushel for soybeans. These MYA prices could be adjusted until September 30, but are not likely to change more than a penny or two per bushel; however, a small increase in the final corn MYA price will reduce the final ARC-CO payment level in most counties. These MYA prices will also be used to determine 2016 Price Loss Coverage (PLC) payments for any eligible corn and soybean producers.

The MYA price for a given commodity is not based on the Chicago Board of Trade (CBOT) commodity prices, or any specific terminal grain prices. The MYA price is the 12-month national average price for a commodity, based on the average market price received at the first point of sale by farm operators across the United States. The USDA National Agricultural Statistics Service (NASS) collects grain sales data on a monthly basis, which is then “weighted” at year-end, based on the volume of bushels sold in each month.

2016 ARC-CO payments for corn are being paid when the actual 2016 county revenue for corn fell below the 2016 county “revenue guarantee” for that crop. The actual county revenue is the 2016 final FSA county yield for a given crop times the final 2016 MYA price for that crop. If that revenue amount is lower than the “revenue guarantee” for that crop in a given county, producers in that county that are enrolled in the ARC-CO farm program would earn a 2016 ARC-CO payment. The “revenue guarantee” for a given crop is the “benchmark” (BM) revenue times 86% (.86). The BM revenue is the 5-year (2011-2015) county average yield (dropping the high and low yield) times the BM price, which is the 5-year (2011-2015) average MYA price (again dropping the high and low price).

It appears that about 70-80 percent of the counties in Southern Minnesota and Northern Iowa, as well as in Eastern South Dakota, will get a 2016 corn ARC-CO payment; however, very few counties will earn the maximum 2016 payment. Only about one-third of the counties in Central and Northern Minnesota or Eastern North Dakota will get a 2016 corn ARC-CO payment, with many counties receiving a zero payment. Almost no counties in the Upper Midwest will get a 2016 soybean ARC-CO payment. Many counties in this region had record corn and soybean yields in 2016.

ARC-CO payments are made on the basis of crop base acres. Producers should be aware that most of the quoted 2016 ARC-CO payment rates per acre for corn, soybeans, and other crops need to be factored by 85 percent (.85), in order to arrive at an ARC-CO payment rate per crop base acre. The 2016 ARC-CO payments are also subject to the required Federal sequestration reduction of 6.8 percent, which will affect the final total payment received by farm operators.

One of the hardest things for producers to understand is why there is such a large variation in the 2016 corn ARC-CO payments from county-to-county. The main reason for this variation was the difference in the 2016 benchmark corn yields from county-to county. The 2016 benchmark yields were lower in some counties due to lower county yield levels from 2011-2015, the years used to calculate the benchmark yields. Some of these same counties then had record corn yields in 2016, which greatly increased the “% of BM Yield”, and will result in very limited or zero 2016 corn ARC-CO payments.  By comparison, some other counties with higher benchmark yields that were hit with weather problems in 2016, and had 2016 corn yields that were closer to average, will receive higher levels of 2016 corn ARC-CO payments.

Corn and wheat producers that are enrolled in the Price Loss Coverage (PLC) farm program choice will also receive a 2016 payment in October. The current target price is $3.70 per bushel for corn, and the 2016 final MYA price is estimated at $3.35 per bushel, so there would be a 2016 PLC payment of $.35 per bushel for corn. Similarly, the wheat target price is $5.50 per bushel, with a 2016 final MYA price is $3.89 per bushel, resulting in a 2016 PLC payment rate of $1.61 per bushel for wheat. The final estimated 2016 MYA price for soybeans is $9.50 per bushel, which exceeds the $8.40 per bushel target price, so there will not be a PLC payment for soybeans. The 2016 PLC payments are paid on the basis of crop base acres on a farm. Payment estimates need to be factored by 85 percent (.85) to arrive at the payment amount. The PLC payments are also subject to the 6.8 percent Federal sequestration reduction.

Previous county yields for corn, soybeans, and other crops, benchmark yields and revenues, FSA yields, 2014 and 2015 ARC-CO payment levels, and other farm program information are available on the FSA ARC-PLC web site, which is at:   www.fsa.usda.gov/arc-plc.

Kent Thiesse has prepared an Information Sheet titled: “Estimating Final 2016 Corn ARC-CO Payments”, as well as updated “2016 ARC-CO Payment Estimate Tables” (as of 9-01-17) for most counties in Minnesota, Northern Iowa, and Eastern North and South Dakota. To receive a free copy of the Information Sheet and the Payment Tables, send an e-mail to: kent.thiesse@minnstarbank.com

Focus on AG is a weekly Column which features timely information on crop and livestock production, farm management and marketing ag policy, renewable energy, and other timely ag Topics. For additional information contact Kent Thiesse, Farm Management Analyst and Vice President, MinnStar Bank, Lake Crystal, MN. Phone 507-381-960; E-Mail kent.thiesse@minnstarbank.com Web Site http://www.minnstarbank.com

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